Earning a living from wood working

[Mr T]

Hi

I understood that you could reclaim the VAT on materials and some overheads, so you will not actually be 17.5% more expensive, is that so?

Some random observations, most of them pessimistic I'm afraid:

Dan's remarks about fitted furniture, MDF and £1500 turnover bear out my comment about turning your hobby into a business changing your relationship to the craft. For some it may spoil it.

Woodworking as a business requires a different mind set compard to the hobbyist. The hobbyist has the luxury to choose to make a piece with hand tools if they wish, because that is a nice way of doing it. As a business you are always looking for the most efficient way of working to a high standard, a difficult balance

Being self employed is not for everyone. You need an understanding family and a lot of stamina. You also need great self confidence, you have to believe you make the best furniture their is. You also have to have the same attitude to your business sense, as you may have to stake money on it (see my previous comments about start up costs).

It is true that the throw away approach to interior design and the French country look promoted by the glossies has made it difficult for fine furniture makers. But one of the unique selling points that we have is the relationship we build with the customer in order to make a piece just for them. Some (very rich) customers are prepared to pay quite a lot for that relationship. This is another reason for having great self belief.

Regarding training. I believe makers offering professional training at a price have a duty to be blunt with prospective students about what they may be letting themselves in for. "A New Career for you In 2008" can be misleading. Even after a year with a top maker very few people are ready to set up on their own. It would be interesting to see stats. on the drop out rate for graduates from these courses. It is better to get employed as a maker for a few years, then you can make your mistakes at someone else's expense rather than you own.

Sorry to be a rather wordy wet blanket. I want to say that working as a maker is a great way of earning an income, even if it is small; but you should know the realities before you start.

Chris

 

[ProShop]

..

 

[Tusses]

I would be interested to know your mindset on how to use vat to your advantage. I had a computer shop for a few years and was vat registered, and yes - buying and selling, you can claim your vat back - but in a craft , you have to charge vat on your labor which you cannot claim for ?

to put a bit more detail to 'my' picture I will paste this post that I put on the other forum.....




I am very into VW's (I have about 20) and I go to the shows anyway.

I bought 7 of the newer vans a few months ago (before the summer prices came ! ) and the prototype is nearly finished. Ive made patterns of the finished design, so the other 6 should go quickly.

I have been self employed for the past 12 yrs doing this and that - had a computer shop for about 5 years and hated it ! I did a few houses when the prices were going up at a silly rate !. I had a narrow boat shell built, as we now live by the canal, but I just sold that unfinished because the boating market has took a bigger dive than the houses ! I got out quick and got back my money so am happy with that one.

I keep coming back to wood tho. The only reason I haven't stuck with wood so far is because I havent found the bread an butter stuff to keep me going. Maybe the camper thing will be it ? Who knows !

Then I can 'create' whatever fine stuff I like and just offer it for sale in an online gallery or something with no worries about 'having' to sell it quickly (apart from the space needed to keep it ! )

I have just about all the equipment I need bar a few router bit sets for making door mouldings and stuff, and I have a small but workable workshop 16' x 20'

 

[BradNaylor]

And as for keeping below the VAT threshold :? :? :? .
How the hell are you going to grow a business with that kind of mindset :shock: . i just fail to understand why people seem to be afraid of VAT, or see it as a barrier of some kind. VAT can in fact be beneficial if you learn to use it in the right ways.


..

Sure, if 'growing' a business is what interests you then you're going to have to break through the VAT theshold and join their club.

Most makers I know however, have no intention of or desire to 'grow' a business - the just want to earn a decent living doing something they enjoy. I have been VAT registered for the last 25 years; it is only now that I have downsized my operation that I can see how much money I have been throwing away to HMRC. Although I am no longer VAT registered my selling prices remain the same - in other words I have successfully put my prices up by 17.5%!

In a business such as furniture making the bulk of ones selling price is made up of ones own labour. The costs of materials and overheads is relatively small. Consequently the amount of VAT you can claim back is very small.

Anyone trading successfully at or around the VAT threshold is going to experience significant extra costs when they register for VAT - typically around £7500 per year - as a huge percentage of one's turnover must be paid over to the government.

Those supplying retail customers will not be able simply to add the cost of VAT onto their selling prices as price resistance will be met. If no resistance is met one would be better advised simply to put one's prices up and take an extra day a week off!

My empire building days are over. I will never employ anyone, and I will never register for VAT again.

 

[Escudo]

On the subject of VAT if any members of the forum need a little advice they can always send me a PM. (I am a practising Chartered Accountant)

Proshop said

VAT can in fact be beneficial if you learn to use it in the right ways.

This is indeed true. A good example is to account for VAT on a cash basis, in other words only pay VAT over (as part of completing your VAT return) when cash has been received. With careful planning you can engineer three months use of the VAT money before having to pay this over.

The same is true of purchases. Claim input VAT back early by settling invoices for overheads and materials at the end of the quarter, not the beginning.

Hope this little "*** bit" helps.

Cheers, Tony.

 

[ProShop]

.

 

[Benchwayze]

I might be somewhat naive, but I thought that if you were 'VAT' Registered and paid VAT to the Treasury, you simply add that to your bill; the buck stops with the consumer?
I might be wrong of course, but that's what I was told. :?

regards
John

That's true, but it also means (assuming all other things are equal) that you are 17.5% more expensive to the customer in relation to a non-VAT registered trader, meaning you will get less work.

Cheers

Karl

Very well put.

From a consumer's point of view, their concern is how much money is leaving their pocket, who keeps which portion of it is of no concern to them.

Ahhh but the thing is Mr. H..
I would prefer to use the services of someone who is VAT registered. At least I can be 80% certain that such a person does a reasonable volujme of work and has done enought to remain in business; which tells me there is an expert at hand.

So it isn't everyone who goes for the least expensive option.
Not all of us merely know the price of everything, but the value of nothing!
Regards
John

 

[MooreToolsPlease]

I've been self employed for 4 years now, times have been hard, hours have been longer than anyone I know will care to believe but I wouldn't change anything.
One of the traps I fell into when I first started out though was to find ways of expanding and making things bigger than necessary.
When I figured out the best way to earn well was keep things small, things turned around big time.
Go for it, you wont regret it

 

[mister henderson]

I might be somewhat naive, but I thought that if you were 'VAT' Registered and paid VAT to the Treasury, you simply add that to your bill; the buck stops with the consumer?
I might be wrong of course, but that's what I was told. :?

regards
John

That's true, but it also means (assuming all other things are equal) that you are 17.5% more expensive to the customer in relation to a non-VAT registered trader, meaning you will get less work.

Cheers

Karl

Very well put.

From a consumer's point of view, their concern is how much money is leaving their pocket, who keeps which portion of it is of no concern to them.

Ahhh but the thing is Mr. H..
I would prefer to use the services of someone who is VAT registered. At least I can be 80% certain that such a person does a reasonable volujme of work and has done enought to remain in business; which tells me there is an expert at hand.

So it isn't everyone who goes for the least expensive option.
Not all of us merely know the price of everything, but the value of nothing!
Regards
John

Well then I guess you are the exception that proves the rule.

I don't know who you are getting at with that remark about value, though, are your customers like that?

 

[BradNaylor]

On the subject of VAT if any members of the forum need a little advice they can always send me a PM. (I am a practising Chartered Accountant)

Proshop said

VAT can in fact be beneficial if you learn to use it in the right ways.

This is indeed true. A good example is to account for VAT on a cash basis, in other words only pay VAT over (as part of completing your VAT return) when cash has been received. With careful planning you can engineer three months use of the VAT money before having to pay this over.

The same is true of purchases. Claim input VAT back early by settling invoices for overheads and materials at the end of the quarter, not the beginning.

Hope this little "*** bit" helps.

Cheers, Tony.

Tony,

I am sure your advice is excellent for those who have no choice but to be registered for VAT; my point is for those who are at trading below, at, or around the registration theshold.

For anyone selling basically their own labours to non-business customers VAT registration is a massive extra cost. This would include all tradesmen such as plumbers, electricians, plasterers, gardeners etc.

Lets say in one week I make a piece of furniture for someone and charge them £1000.

Without VAT registration the sums might go like this;

Selling price £1000.00
Material Cost £235.00 including VAT (£200 +VAT)
Rent/Rates £100.00 (no VAT)
Other Costs £58.75 including VAT (£50.00 +VAT)

Nett Profit £606.25



If I register for VAT the sums change somewhat;

Selling Price £851.06 (+VAT)
Material Cost £200.00 (+VAT)
Rent/Rates £100.00 (no VAT)
Other Costs £50.00 (+ VAT)

Nett Profit £501.06


So in this simple example VAT registration is costing over £100 per week!

You might argue that I should charge VAT on top of my £1000 selling price. My counter argument would be that if my customer is happy to pay £1175 intead of £1000 I may as well charge them that anyway!

Selling price £1175.00
Material Cost £235.00 including VAT (£200 +VAT)
Rent/Rates £100.00 (no VAT)
Other Costs £58.75 including VAT (£50.00 +VAT)

Nett Profit £781.25

It's looking better and better!

As an accountant your clients generally will be VAT registered and so able to claim back the VAT that you add to their bill. My clients are members of the general public who cannot do this. Their only concern is the amount they have to write on the cheque!

Anyone working by themselves and considering taking on staff should study carefully the above examples and think about the implications. The extra turnover necessary to support the employment of an assistant will push most businesses through the registration threshold. The extra turnover then necessary to support the additional burdon of VAT could well necessitate the employment of a second assistant!

Which would mean moving to larger premises...


AARGH!!!


... this is a route which more often than not ends in bankruptcy!

Keep it small and keep it all!

Cheers
Dan

 

[BradNaylor]

This topic has been done to death a few times on the forum in the past and to me the same issues get aired over & over again

..

It has hardly been touched upon in the time I've been around; most regular contributors to the forum are now relative newcomers, and will not have had the opportunity to discuss this topic.

Dan, No offence but................. ......VAT a Club?

Simply a figure of speech. Do you have anything constructive or interesting to add?

Cheers
Dan

 

[BradNaylor]

I would prefer to use the services of someone who is VAT registered.

I guess that you are referring here to business to business services - ie you can claim back the VAT you are charged.

I can assure you that the general public does not share this view! When I was VAT registered I would estimate that around 50% of my clients offered to pay me in cash in the hope that I would knock the VAT off their bill.

Needless to say I always declined...



Cheers
Dan
:wink:

 

[skipdiver]

The point Dan made is a valid one.I have a mate who own a company making and installing UPVC doors windows and conservatories.The more his company grows,the more staff he has to take on,hence the more work he has to generate to pay the staff.He calls it a monster devouring everything in it's path and the very thing he created to escape the 9 to 5 is now a burden to him.He hates it and has tried to get out but his business partner wont buy him out.

The point i am trying to make is be careful what you wish for.Being self employed is a great way of making a living but it can also be a pain.I love doing the work but the other aspects are not so good.Dealing with customers is sometimes a PITA and you have to be pretty thick skinned.Keeping accounts and records,ringing suppliers,being let down on deliveries.The list of stuff that is annoying is endless but at the end of the day i wouldn't swap it for anything.

I've been self employed since 91 and would never work for anyone again,neither would i become VAT registered,just more of the annoying stuff to me.I keep it simple and only take on work i want to do but it has taken a lot of hard work to get to this point.I must admit though that both the ladies in my life(first wife and current lady) have been very supportive and taken up the slack financially when things have been tight.

All in all,the best you can hope for is that the pluses outweigh the minuses,and in my case they do.

Steve.

 

[mister henderson]

I've noticed that there is a lot of confusion about VAT, especially amongst those tradesmen who are in a position to consider it optional. Many unsophisticated chaps can only think about the VAT that they would be able to re-claim if they were registered, and quite often they opt for voluntary registration. That's fine if they are only selling to VAT registered people who can themselves reclaim the VAT, but as Dan has pointed out, a bad move if they are selling to private individuals

What is useful for people to grasp is that VAT is a tax on the value that has been added to the goods. That's what tradesmen do, they buy goods (for instance timber) then increase its value (buy turning the timber into a piece of furniture) then sell it to a customer. The amount of tax they pay altogether (subtract the input VAT from the output VAT) is equal to 17.5% of the value that they have added to that timber. In other words, the labour that they have put in has been taxed at 17.5%.

People who mostly sell labour (us if we are professional wooodworkers) do not want to have to pay tax at those levels, so should avoid VAT registration if at all possible

 

[BradNaylor]

The point Dan made is a valid one.I have a mate who own a company making and installing UPVC doors windows and conservatories.The more his company grows,the more staff he has to take on,hence the more work he has to generate to pay the staff.He calls it a monster devouring everything in it's path and the very thing he created to escape the 9 to 5 is now a burden to him.He hates it and has tried to get out but his business partner wont buy him out.

The point i am trying to make is be careful what you wish for.Being self employed is a great way of making a living but it can also be a pain.I love doing the work but the other aspects are not so good.Dealing with customers is sometimes a PITA and you have to be pretty thick skinned.Keeping accounts and records,ringing suppliers,being let down on deliveries.The list of stuff that is annoying is endless but at the end of the day i wouldn't swap it for anything.

I've been self employed since 91 and would never work for anyone again,neither would i become VAT registered,just more of the annoying stuff to me.I keep it simple and only take on work i want to do but it has taken a lot of hard work to get to this point.I must admit though that both the ladies in my life(first wife and current lady) have been very supportive and taken up the slack financially when things have been tight.

All in all,the best you can hope for is that the pluses outweigh the minuses,and in my case they do.

Steve.

Wise words, Steve.

Couldn't agree more

I've noticed that there is a lot of confusion about VAT, especially amongst those tradesmen who are in a position to consider it optional. Many unsophisticated chaps can only think about the VAT that they would be able to re-claim if they were registered, and quite often they opt for voluntary registration. That's fine if they are only selling to VAT registered people who can themselves reclaim the VAT, but as Dan has pointed out, a bad move if they are selling to private individuals

What is useful for people to grasp is that VAT is a tax on the value that has been added to the goods. That's what tradesmen do, they buy goods (for instance timber) then increase its value (buy turning the timber into a piece of furniture) then sell it to a customer. The amount of tax they pay altogether (subtract the input VAT from the output VAT) is equal to 17.5% of the value that they have added to that timber. In other words, the labour that they have put in has been taxed at 17.5%.

People who mostly sell labour (us if we are professional wooodworkers) do not want to have to pay tax at those levels, so should avoid VAT registration if at all possible

More wise words, Mr H.

Cheers
Dan

 

[Mr T]

This little anacdote may help to illustrate how being self employed changes your relationship to your work.

A couple of years ago I was cleaning the first floor windows of our house, standing at the top of an extended ladder. Unfortunately the bottom of the ladder decided to slid away. A number of thoughts could have flashed through my mind as I plunged the 15 feet to the ground, but the only thought was "bloody hell I'm going to have to take some time of work"!

Chris

 

[Mcluma]

It is strange how this thread has gone into VAT,

This has do do with WW and if people would like to pay for fine furniture,

Well the question has to be, are you making your own, or are you making box standard off the shelf everybody can buy and you should not complain if people do not want to pay a lot of money as they can also buy this stuff at the local corner shop/ikea/MFI

If you make your own, be creatif, be bold, dare and you will succeed, and then you can charge the Gbp 400 pound dailly rate for you furniture Plus material

break-out / away of the run of the mill furniture, be a designer, use your head, use your heart.

Use different material to complement wood, like glas, steel, fabrics stone

make something unusual / make something contemporary,

Just make something more creatif,

Go to very expensive furntiure shops and look arround, and then you see, that there is a good margin to be made, use new techniques, use new modern materials, (yes people like you made that furniture and make a good living)

Fine woodworkers have to step into the 21 century, incorporate AV equipment, lights, etc etc, just be different,

If you are making MFI/IKEA desinged furniture , you cannot charge the money (people do not see workmanship, people see how it would look in their house, and how it would make them feel,

BUT MOST OF ALL ------ HOW IT WOULD MAKE OTHERS FEEL IF THEY LOOK AT THEIR FURNITURE

AND KNOW ONE THING .. WHO BUYS YOUR FURNITURE, correct 80% are woman who make the decission, and they do not give a hood if you use dovetails, sliding mortises etc etc, just does it look right, and does it look better then the neighbours one, and yes they will pay the price,

no they do not pay the price for fine woodworking, but pay the price for design!!!!

if they want somthing cheap, they go to IKEA or MFI

My advise, GO FOR IT, you have the tools you have the skils,

But be a desinger first

 

[Tusses]

Thanks Mcluma

very inspiring . It is how I feel - thats why I posted. I can design , I can also hide the odd dovetail away just for me !

I think I might try that, in tandem with some bread and butter stuff.

I definitely wouldn't enjoy working with mdf or furniture board etc for a living.

Cheers

Rich

 

[bugbear]

Furniture making is primarily a hobby activity. Even those people who claim to make a living at it are mostly doing so by teaching or writing or as Mr T points out, being supported by external sources.

Show me someone in this country who claims to make a living making fine furniture and I will show you someone who isn't telling the whole story.

Sounds about right. Conversely, I routinely see (decent) furniture in John Lewis (and other local posh department stores) at the sort of prices charged by cabinet makers.

Now, if the customer bought the item from a cabinetmaker it would be bespoke, whereas the department store version is off-the-peg.

I'm not talking crazy one-off design here, just tables of the right size, book cases of the right width for an alcove etc.

This being the case, at present prices all customers should be buying from cabinet makers. Given that they aren't, the cabinet makers have a marketing problem.

BugBear

 

[woodbloke]

BB - there is something in what you say and I know the sort of furniture you mean, fairly routine, run-of-the-mill sort of stuff, reasonably well made but with no great pretension to being stunning heirloom pieces...what I would classify as decent, well made stuff, sort of kit that you can see in M&S would be the example I'd use.
But not fine furniture and there to me is the distinction. The individual maker ought to have the skills (all skills, woodwork, design and business) to be able to make this sort of furniture which is a far harder market to break into which is why so many fail who only try and do this sort of stuff. Some succeed (Wales and Wales, Savage and the Barnsley shop to name three) but I suspect that most makers get by with turning out more utilitarian stuff at a price point closer to that offered by the bigger commercial stores, but with the advantage of being able to give the customer a fairly broad base (within limits) of design concepts and materials - Rob